Food manufacturers and retailers in Spain are set to face "a difficult couple of years", according to the latest research from analysts BMI.

While France and Germany are officially out of the recession, Spain remains one of Europe's weakest economies.

In a report on the outlook for the Spanish food and beverage sectors, BMI said it sees the country's GDP falling by 3.9% in 2009 - and 0.9% in 2010.

Soaring unemployment, falling incomes and a weak housing market have put pressure on consumer spending, with price-conscious consumers flocking to private label.

Fierce competition from own label was a factor in Sara Lee's decision earlier this year to sell three of its Spanish bakeries.

"The market will therefore continue to be a very difficult place to do business for major brand-builders such as Sara Lee, and BMI expects such firms to continue to look for ways to cut costs and create efficiencies so as to maximise their chances of maintaining sales in what is now a highly price-sensitive environment," BMI said.

Moreover, BMI issued a warning on levels of unemployment in Spain, which already run at around 18%.

"We believe that the unemployment rate could peak as high as 25% in 2010, but warn that it could head even higher if no amendments that would encourage hiring are made to Spanish labour laws over the coming years," the analysts argued.

Nevertheless, BMI ranks Spain as its third "most attractive" food and drink market in western Europe for investors over the medium term.

The analysts claimed that Spain is relatively less mature than other markets in the region and added that more young single people and working women is driving demand for convenience food.

"This is reflected in Spain's market entry potential, with many opportunities for companies offering new value-added products to get feet in the door. Spain's market is also judged to be relatively immature, with plenty of scope for further multinational expansion in most food and drink sectors," BMI noted.